When you buy bonds of a company, you can buy a swap from an investor who agrees to pay you a certain amount if the bond issuer defaults. Why not, then, buy a swap from an investor who agrees to pay you a certain amount if the damages awarded against your company or the settlement approved by your company exceeds a certain amount. The catastrophe is the major adverse outcome of litigation (See my post of Dec. 4, 2005: catastrophe modeling; April 26, 2006: calculations of litigation catastrophe odds; and March 6, 2009: speculation by me on catastrophe bonds.).
Further, someone who is not a party to the lawsuit might speculate on the outcome, rather than hedge the outcome. Litigation loss swaps may be coming to a hedge fund near you!